A Company Voluntary Arrangement (CVA) often forms part of a successful business rescue plan. These arrangements take the form of a binding contract between a company and its creditors, setting out how the company’s debts will be repaid over time. A CVA therefore offers struggling but long-term viable businesses the opportunity to recover, free from imminent creditor pressure.
For groups and individuals involved in running a business, these consequences and benefits of a CVA are widely acknowledged and understood. However, when it comes to the effect such an arrangement may have on other important stakeholders, the implications are less clear. A CVA can affect employees in particular and it is important that all businesses take the time to understand how the workforce may be implicated if they are considering this option. This will not only ensure that they do right by their employees but also help businesses understand all of the options should the cost of possible redundancies jeopardise rescue.
Possible Effects Of Company Voluntary Arrangements On Employees
In some cases, a Company Voluntary Arrangement may have little to no effect on employees. After all, a CVA will only be approved if the company is deemed to have a high chance of being able to pay its debts and recover. Employees will often be a key part of this long-term viability and offer a degree of continuity throughout the term of the arrangement.
However, redundancies often go hand in hand with a CVA. Struggling businesses will need to prove that they are taking appropriate steps to cut costs and meet their liabilities and reducing the size and/or cost of the workforce is often an effective way to do this. If redundancies are proposed, the company must abide by statutory redundancy rules and follow the correct consultation process. This awareness of employment law will both ensure a clean and fair break with employees and reduce the risk of claims being made against the company which may add additional unsecured debts to the existing financial difficulties.
A business wanting to save money but avoid redundancies may streamline its workforce in other ways. For example, a business entering into a CVA could enter a process of negotiation with employees with a view to changing pay, hours and employment contracts. It is again vital that proper process is followed as per employment law if a business is to go down this route.
Rights Of Employees Made Redundant In A CVA
Should employees be made redundant as part of a CVA, they will still be entitled to redundancy pay subject to qualifying criteria. A CVA qualifies as an insolvency event in the eyes of the UK government and therefore they will cover the cost of redundancy pay that would otherwise be paid by the company.
For staff to receive redundancy pay, they must have worked for the company for at least two years and be let go directly as a result of a CVA. Employees that meet this criteria may be eligible for statutory redundancy pay, unpaid holiday pay, wage arrears, notice pay and unpaid pension contributions. As of April 2023, the government has capped the total amount of redundancy pay at £643 weekly and the maximum amount any employee can get is £19,290.
Redundancy payments are made by the Redundancy Payment Office (RPO). As a result, the RPO will become a creditor when staff are made redundant and must be paid back as per the terms of the CVA. It is important to note that paying back the RPO in this way is typically more affordable for struggling businesses as it allows them to spread redundancy costs over an agreed period, rather than incurring all of these costs at one time.
Get Advice On CVAs
With possibly significant financial and career implications for employees, and the costs of redundancies to bear in mind, it is vital that you seek professional advice if you are considering a CVA as a means of addressing immediate financial difficulties.
A professional can talk you through the CVA process and outline the impact it may have on your employees to help you determine the best course of action for all parties involved. Don’t hesitate to get in touch with the business rescue experts here at Ballard Business Recovery for the transparent and expert advice you need. Our team has years of experience dealing with CVAs and can help you navigate a suitable business rescue plan.
